2011
Andrews Corporation
Company Report
Practice Rounds 1-4
“Quality Sensors You Can Trust”
Table of Contents
Performance Assessment ............................................................................................................................. 4
Marketing Performance: by Teri ............................................................................................................... 4
Accessibility ........................................................................................................................................... 4
Awareness ............................................................................................................................................. 5
Attributes .................................................................................................................................................. 6
Product Price ......................................................................................................................................... 6
Product Positioning ............................................................................................................................... 7
Product Reliability ................................................................................................................................. 8
Customer Survey Score ......................................................................................................................... 9
Production/HR: by Teri ........................................................................................................................... 10
Inventory Management ...................................................................................................................... 10
Plant Utilization................................................................................................................................... 12
Automation ......................................................................................................................................... 13
Capacity ............................................................................................................................................... 14
Labor Force Productivity Improvements ............................................................................................ 14
Finance: by Patrick .................................................................................................................................. 16
Balanced Scorecard: by Teri .................................................................................................................... 19
Competitive Strategy Evaluation ................................................................... Error! Bookmark not defined.
2
Figure 1: Shows Product Accessibility per Practice Round ........................................................................... 4
Figure 2: Shows Customer Awareness for Products per Practice Round ..................................................... 5
Figure 3: Shows Price for Products per Practice Round................................................................................ 6
Figure 4: Classic Price/Demand Curve .......................................................................................................... 7
Figure 5: Shows Product Reliability per Practice Round ............................................................................... 8
Figure 6: Shows Customer Survey Rating by Product per Practice Round ................................................... 9
Figure 7: Shows Products Sold and Remaining Inventory by Practice Round ............................................ 10
Figure 8: Shows Excess Inventory Levels by Practice Round ...................................................................... 11
Figure 9: Shows Revenue Lost Due to Product Stock Out by Practice Round ............................................ 11
Figure 10: Shows Plant Utilization by Practice Round ................................................................................ 12
Figure 11: Shows Production Line Automation by Practice Round ............................................................ 13
Figure 12: Shows Capacity Changes by Practice Round .............................................................................. 14
Figure 13: Shows Labor Force Expenses by Practice Round ....................................................................... 14
Figure 14: Shows Employee Training Hours by Practice Round ................................................................. 15
Figure 15: Shows Employee Productivity Index, Turnover Rate and Overtime by Practice Round............ 15
Figure 16: Financial Ratios .......................................................................................................................... 16
Figure 17: Contribution Margin .................................................................................................................. 17
Figure 18: Profit in Millions ......................................................................................................................... 17
Figure 19: Stock Price .................................................................................................................................. 18
Figure 20: Scorecard Dimensions by Practice Round ................................................................................. 19
Figure 21: Financial Dimension by Practice Round ..................................................................................... 19
Figure 22: Internal Business Process Dimension by Practice Round .......................................................... 20
Figure 23: Customer Dimension by Practice Round ................................................................................... 21
Figure 24: Learning & Growth Dimension by Practice Round .................................................................... 22
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Performance Assessment
Marketing Performance: by Teri
During the practice rounds we adjusted our strategy from our original plan as discussed below.
We also made a few critical errors which hindered our growth and competitive ability. These errors are
discussed below along with how we intend to avoid these errors in the competition.
Accessibility
Percentage
Product Accessibility
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Able
Acre
Adam
Aft
Agape
Awesom
Agate
Aero
Round 0
Round 1
Round 2
Round 3
Round 4
Figure 1: Shows Product Accessibility per Practice Round
We were successful in continually increasing product accessibility at a steady
rate throughout the four rounds of competition, which followed our business plan’s
strategy. We understand that the sales budget drives product accessibility, which is the
interaction with the customer during and after a sale. Our products have benefited
from having an appropriate number of salespeople and quality distribution channels.
However, we understand that accessibility is only one part of making a sale. The other
part is awareness, which we will work on strengthening as stated below.
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Awareness
Customer Awareness
Percentage
80%
70%
Able
60%
Acre
50%
Adam
40%
Aft
30%
Agape
20%
Awesom
10%
Agate
0%
Aero
Round 0
Round 1
Round 2
Round 3
Round 4
Figure 2: Shows Customer Awareness for Products per Practice Round
Throughout the four rounds of competition, we did not achieve 100% on any of
the products, with the highest awareness being only 70%. As stated in our business
plan, we were anticipating reaching 100% awareness by round 4 on our key products.
During the next competition, we plan to have a stronger emphasis on product
awareness in the high technology segments in order to achieve the desired awareness.
During the practice competition, we introduced two new products in the third
round, Awesome and Agate, and one new product in the fourth round, Aero. These
products were introduced with very low awareness. We understand that new products
automatically receive 25% awareness because they are newsworthy events that create
buzz. We will use this free awareness to our advantage, and plan to place more
marketing dollars towards these new products’ promotion in order to gain better
awareness and more market share.
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Attributes
Product Price
Product Price
Dollars
$45.00
$40.00
Able
$35.00
Acre
$30.00
Adam
$25.00
Aft
$20.00
Agape
$15.00
Awesom
$10.00
Agate
$5.00
Aero
$Round 0
Round 1
Round 2
Round 3
Round 4
Figure 3: Shows Price for Products per Practice Round
During the four rounds of competition, we never priced our products outside the
segment guidelines. We gave special consideration to pricing in the more price sensitive
markets, such as the low and traditional segments. We will price our products with the
same careful analysis during the competition, and continue to refer to the classic
price/demand curve as shown below, as well as competitors’ pricing and customer
expectations when determining product prices for each round.
During the competition, we regularly developed charts of price versus quantity
sold. Only in a few instances was there a strong direct correlation. We surmise that this
behavior is due to the low maturity level for the market. As the producers gain
experience, we expect that the pricing behavior would move toward a more traditional
demand curve. In the short-term, there are a number of factors that have a greater
effect on the quantity sold. Did a competitor stock out, pull out of a market, or fail to
position their product appropriately?
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Figure 4: Classic Price/Demand Curve
Product Positioning
During the practice rounds, we positioned our products close to the ideal offsets
as presented in our business plan. Our one major mistake we made in the first round
was the repositioning of our low-end product, Able. This significantly affected this
product’s survey score, ultimately leading to very few sales and a large quantity of
inventory to carry over to the next year. During the competition rounds, we will be
diligent in our review and plan for repositioning the products and will do our best to
avoid these types of mistakes in the future.
During the practice rounds, we introduced 3 new products. What we discovered
is that the more products that a company has, the more products that must be
simultaneously repositioned, and the longer it will take for all of the products to be
repositioned. Based on this, it is unwise to introduce extra products before efficiency
programs have been implemented. With the increases in efficiency and the reduction in
material costs, there will be less collateral drag due to the repositioning of an additional
product.
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Product Reliability
Product Reliability
30,000
Able
25,000
MTBF
Acre
20,000
Adam
15,000
Aft
Agape
10,000
Awesom
5,000
Agate
Aero
Round 0 Round 1 Round 2 Round 3 Round 4
Figure 5: Shows Product Reliability per Practice Round
The product reliability attribute was treated similarly to the pricing attribute
during the practice rounds, for we kept the reliability within the segment guidelines.
We maintained a high MTBF for Aft, the product in the performance segment, as this
segment’s consumers placed high importance on this attribute. As the above chart
indicates, we lowered the MTBF for products that did not have this product as a high
importance for consumers, which saved considerable development dollars for each
product. We found this to be the trend with our competitors as well.
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Customer Survey Score
Customer Survey Score
30
Able
25
Survey Score
Acre
20
Adam
15
Aft
Agape
10
Awesom
5
Agate
-
Aero
Round 0
Round 1
Round 2
Round 3
Round 4
Figure 6: Shows Customer Survey Rating by Product per Practice Round
As denoted in the chart above, the customer survey ratings for each product
varied greatly by round. We focused heavily on this rating, as products will outsell
others that have a lower score. We struggled with maintaining a steady growth, and
were only able to reach a high of 27 throughout the four rounds. We were continually
beat by our competitors on achieving high scores. We plan on continuing to focus on the
customer survey rating as a key factor to increase our market share during the next
competition. We will pay particular attention to the attributes mentioned earlier in this
report, with special consideration to how the buying criteria are weighted regarding
customer perceived importance.
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Production/HR: by Teri
Inventory Management
Products Sold and Remaining
Inventory by Round
Round 0
Able
Round 1
Acre
Adam
Round 2
Aft
Agape
Round 3
Awesom
Agate
Inventory
Sold
Inventory
Sold
Inventory
Sold
Inventory
Sold
Inventory
Sold
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
-
Round 4
Aero
Figure 7: Shows Products Sold and Remaining Inventory by Practice Round
As shown in the chart above, two of our new products, Awesome and Agate,
came online during round three, and our third new product, Aero, came online during
round 4. During the competition, we plan on spacing out the introduction of the new
products to avoid incurring heavy costs for R&D all at once. We plan to strategically
time the introduction of our products into the market in order to leverage ourselves to
capture market share in the later rounds.
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Amount of Inventory (Thousands)
Excess Inventory Levels
1,600
1,400
Able
1,200
Acre
1,000
Adam
800
Aft
600
Agape
400
Awesom
200
Agate
-
Aero
Round 0
Round 1
Round 2
Round 3
Round 4
Figure 8: Shows Excess Inventory Levels by Practice Round
It is important to recognize the significant impacts of having excess product
inventory and incurring inventory carrying costs. However, it is also important to take
into consideration the sales lost if not enough product was produced, resulting in the
product stocking out. The chart below indicates the dollars lost due to stocking out in
rounds that we did not achieve our potential sales as reported in the Capstone Courier.
Revenue Lost: Actual Versus
Potential Market Share
16,000
Dollars (Thousands)
14,000
12,000
Traditional
10,000
Low End
8,000
High End
6,000
Performance
4,000
Size
2,000
Round 0
Round 1
Round 2
Round 3
Round 4
Figure 9: Shows Revenue Lost Due to Product Stock Out by Practice Round
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The chart above compares the segments by round regarding actual market share
versus potential market share. For most of the rounds, our products’ actual market
share exceeded potential market share. However, when the actual market share did not
meet the potential, Andrews lost considerable amounts of revenue as illustrated in
chart above. Round 4 was particularly detrimental in regards to units sold, as Andrews,
along with all the competition, stocked out on most products, leaving customer demand
not met. This was a strategy played by all the companies in an attempt to limit
expenses by only producing what was going to be sold and to not leave inventory
remaining, as round 4 was the last round for the practice competition.
We made an error when entering in our round 4 numbers regarding employees
needed. Due to this error, we only maintained 75% of our needed work force, and had
them working 100% overtime. This greatly reduced the amount of product we
produced and had available for sale. If this error had not happened, we would have
shown better sales results and better met our potential market share.
Plant Utilization
Plant Utilization
250%
Able
Percentage
200%
Acre
Adam
150%
Aft
100%
Agape
Awesom
50%
Agate
Aero
0%
Round 0
Round 1
Round 2
Round 3
Round 4
Figure 10: Shows Plant Utilization by Practice Round
Our goal during the practice rounds was to achieve the highest level of plant
utilization as possible to increase efficiencies. As noted earlier in the report, the low
end segment product, Able, was repositioned during round one, which drastically
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lowered the customer survey score, consequently hindering sales for this product in
round one. This mistake caused aftershocks throughout the next rounds, particularly in
round 2. Due to high excess of inventory for Able from round 1, we did not produce any
of this product in round 2, and yet we still had remaining inventory. This explains the
decrease in round 2’s plant utilization for Able in the chart above.
Automation
Automation Level
Production Line Automation
10
9
8
7
6
5
4
3
2
1
-
Able
Acre
Adam
Aft
Agape
Awesom
Agate
Aero
Round 0
Round 1
Round 2
Round 3
Round 4
Figure 11: Shows Production Line Automation by Practice Round
Throughout the practice rounds we slowly increased automation for all of the
products as we have expressed in our business plan. As shown in the graph above, our
high-end product, Adam, was the only product we decreased in automation. This was
due to correcting our error of mistakenly increasing the automation for this product
higher than customer expectations.
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Capacity
Capacity Changes
2,000
Able
Acre
Capacity
1,500
Adam
1,000
Aft
Agape
500
Awesom
Round 0
Round 1
Round 2
Round 3
Round 4
Agate
Figure 12: Shows Capacity Changes by Practice Round
As the chart shows above, we started out the round with large changes in
capacity in most of the segments, and began to show stabilization in the later rounds.
The largest shift in capacity is shown in round 2 for the low-end product Able. As
mentioned previously, this was due to mistakenly repositioning this product in round 1
and lowering the age of the product, causing large amounts of inventory to be left over
due to a low customer survey score. We decided to sell capacity and not produce this
product in round 2 as we had sufficient inventory for that round’s sales.
Labor Force Productivity Improvements
Dollars (Thousands)
Recruiting Spend
4,000
3,000
2,000
1,000
Round 0
Round 1
Round 2
Round 3
Figure 13: Shows Labor Force Expenses by Practice Round
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Round 4
Hours
Training Hours
70
60
50
40
30
20
10
Round 0
Round 1
Round 2
Round 3
Round 4
Figure 14: Shows Employee Training Hours by Practice Round
Productivity Index
Turnover Rate
Overtime
Employee Productivity/HR
Round 0 Round 1 Round 2
100%
100%
100%
10%
10%
15.7%
0.2%
0%
72.1%
Round 3
100%
20.2%
99.8%
Round 4
100%
19.8%
100%
Figure 15: Shows Employee Productivity Index, Turnover Rate and Overtime by Practice Round
During the practice rounds we spent moderately on the labor force with regards
to training and recruiting as shown above. During the third round of the practice
competition, we invested $1.5M in Concurrent Engineering and $1.5 in Quality Function
Deployment Effort. In the fourth round, we invested $1M in Channel Support Systems,
$500K in Concurrent Engineering, $1.5M in CCE/6 Sigma Training, and $1.5M in GEMI
TQEM Sustainability Initiatives. Due to the practice competition only being four rounds,
we were not able to gauge the success and efficiency of these investments as well as we
were hoping. We plan to invest in the labor force early on in the competition with the
understanding that this will be a large expense in the beginning, but we will see
incremental affects throughout the later rounds as we are not spending exorbitant
amounts on labor. This will free up cash later in the competition for R&D development
and other investments.
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Finance: by Patrick
Financial Ratios
15.0
10.0
Return on Sales
5.0
Return on Equity
0.0
Return on Assets
Round 1
Round 2
Round 3
Round 4
-5.0
Asset Turnover
Leverage
-10.0
-15.0
Figure 16: Financial Ratios
We achieved mixed financial results during the practice rounds. Our Leverage and Asset
Turnover had little variation; while, our Return on Equity had the most notable variation. The variation
in the Return on Equity during round 2 was due to our need to borrow the maximum amount and to sell
the maximum amount of shares to get out of debt from the Emergency Loan. Selling more shares
increased the amount of Equity. During rounds 3 and 4, we strengthened our stock position by buying
back the round 4 reduced profits which reduced this measure. Return on Assets and Return on Sales
both tracked similar to the Return on Equity but to a lesser degree. The Return on Assets suffered due to
idle capacity in round 2; while, we reduced our over-stock and again in round 4 when we failed to hire a
sufficient compliment of employees to operate our assets at optimum levels.
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Contribution Margin
41.0%
39.0%
37.0%
35.0%
33.0%
31.0%
29.0%
27.0%
25.0%
Round 1
Round 2
Round 3
Round 4
Figure 17: Contribution Margin
Our Contribution Margin improved steadily until the last round when under-staffed our plant
and stocked-out early which caused us to miss out on the best margin sales. Also, during round 4 we
introduced a third new product that had high material costs. This too reduced our overall margin.
Yearly Profit in Millions
$6.00
$4.00
$2.00
$0.00
Round 1
Round 2
Round 3
-$2.00
-$4.00
-$6.00
Figure 18: Profit in Millions
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Round 4
We did not achieve profitability until the third round, and we suffered reduced profitability
during the fourth round due to an improper compliment of workers which reduced our production
capacity and caused us to stock-out early. This error both eroded our market share and our year-end
profit.
Stock Price
$35.00
$30.00
$25.00
$20.00
$15.00
$10.00
$5.00
$0.00
Round 1
Round 2
Round 3
Round 4
Figure 19: Stock Price
Our Stock Price decreased early in the early rounds, so we took measures during the third and
fourth round to improve this. We bought back the maximum number of shares during these rounds, and
we paid a small dividend during the fourth round.
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Balanced Scorecard: by Teri and Patrick
Scorecard Dimensions
18
16
14
Financial
10
Internal business Process
8
Customer
6
Learning & Growth
4
2
Round 1
Round 2
Round 3
Round 4
Figure 20: Scorecard Dimensions by Practice Round
Unfortunately, we did not capture the scores for round 4 prior to Capstone being
reset. With only three or four rounds to access, it makes it difficult to find trends.
Round 3 shows significant increases on the scorecard for all dimensions except the
Learning & Growth dimension. The four dimensions are broken out and discussed in
further detail below.
Financial Dimension
10.0
8.0
Points
Points
12
6.0
Stock Price
4.0
Profits
Leverage
2.0
Round 1
Round 2
Round 3
Round 4
Figure 21: Financial Dimension by Practice Round
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Our leverage remained fairly consistent throughout the practice rounds, so there was
little change in our score. We did not achieve profitability during rounds 1 and 2 due to excess
inventory. Repositioning one of our products in a large market moved it outside of the
desirability range based on age. Because of this, we had to take a large emergency loan. We
successfully paid off the loan and achieved profitability in round 3. We maintained profitability
in round 4, but due to an error in choosing the employee compliment, we under-produced and
stocked-out early.
Our stock price decreased during the first 2 rounds; while, we dealt with our overstock
and emergency loan issue. During rounds 3 and 4, our stock price increased as we achieved
profitability. We also bought back the maximum number of shares in rounds 3 and 4 to
strengthen our stock position because we sold the maximum number of shares during round 2.
We also issued a small dividend during round 4. Altogether, these measures were effective at
increasing our stock price, and shares were selling at multiple of 22 times the earnings per
share.
Internal Business Process Dimension
6.0
5.0
Constribution Margin
Points
4.0
Plant Utilization
3.0
Days of Working Capital
2.0
Stock-out Costs
Inventory Carrying Costs
1.0
Round 1
Round 2
Round 3
Round 4
Figure 22: Internal Business Process Dimension by Practice Round
The low scores on this dimension, particularly in round 1 for inventory carrying costs
and round 2 for plant utilization, both reflect the error mentioned earlier in this report when the
low-end product, Able, was repositioned during the first round, making the product a younger
age and consequently turned customers away. We will avoid this mistake in the future.
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Our stock out costs began to become significant in the third round and worsen in the
fourth round as the competition was wrapping up and we did not want to be sitting on large
quantities of excess inventory at the end of the practice competition. During the end of the next
competition, we will make better decisions regarding capacity and production in hopes that we
do stock out or come close, but not lose large portions of potential market share by stocking out
too early.
Customer Dimension
6.0
5.0
Customer Buying Criteria
Points
4.0
Customer Awareness
3.0
Customer Accessibility
2.0
Product Count
SG&A Expense
1.0
Round 1
Round 2
Round 3
Round 4
Figure 23: Customer Dimension by Practice Round
The customer dimension suffered during the practice rounds as we learned how to
better position ourselves strategically. These practice rounds have helped us to better
understand the importance of how customers place heavy emphasis on certain buying criteria,
and how important it is to keep this in mind when repositioning old products and developing
new products. We will further analyze marketing and customer buying criteria during the next
competition. We plan to have a stronger emphasis on product awareness in the high
technology segments in order to achieve better awareness and product placement.
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Points
Learning & Growth Dimension
2.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
-
Employee Turnover Rate
Employee Productivity
Round 1
Round 2
Round 3
Round 4
Figure 24: Learning & Growth Dimension by Practice Round
As stated earlier, we plan to increase the amount spent on employee training in
order to obtain more qualified, efficient, and satisfied employees, which will have a
positive effect on this portion of the scorecard during the competition rounds. During
the practice rounds, the employees worked too much overtime and were unhappy,
which in turn we incurred the highest employee turnover rate compared to our
competition. We also plan to invest in TQM initiatives early on in the competition to get
a head start in lowering material costs and labor costs.
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